Buddy of mine keeps telling everyone Soc Sec breakeven age is 86?

[Midpack]

I’m sure he’s wrong, but he keeps telling everyone else the SS breakeven age is 86, where everything I read suggests it’s 81 plus/minus depending on details. He took SS early, as most of my peers did, and unfortunately almost all of them are financially illiterate. I am not trying to embarrass him, or make others regret taking SS early - I just wish I could get him to stop giving others bad information. Now that he’s done it several times, I plan to privately ask him for a source of his breakeven claim, not hopeful but we’ll see.

The only way it could be 86 would be a set of highly unlikely circumstances, such as taking SS early and investing it all in a portfolio with well above average returns - that’s risky at best. I seriously doubt many people take SS early and invest it. And if you can afford to invest it, no reason you couldn’t invest the money starting at any age thru 70.

Yes, I realize there are many very good reasons to take SS before age 70. But a breakeven age of 86 isn’t one of them…

 

[braumeister]

Ask him how he defines breakeven, and press for details. He may be using some unusual calculation that makes sense to him.

 

[jebmke]

Aside from the people who start because they need people generally fall into two camps (1) I want to get my money back and (2) I want long term inflation adjusted income security and DRCs and when I die I don't care if I got it all back since I have bigger problems.

I see many at TaxAide who start at 62 simply because they get a notice from the SSA that they are eligible. They have no idea how the math works.

 

[Evee]

I plan to take it early and invest it. The breakeven age is around 85 at 7% Look at page 12

Guide to Retirement

Discover our Guide to Retirement, updated annually to provide you with an effective framework for supporting retirement planning conversations with clients.

am.jpmorgan.com

 

[Jerry1]

I plan to take it early and invest it. The breakeven age is around 85 at 7% Look at page 12

Guide to Retirement

Discover our Guide to Retirement, updated annually to provide you with an effective framework for supporting retirement planning conversations with clients.

am.jpmorgan.com

Not your number so not directed at you but 7% IMHO, is a very aggressive assumption. Still, as jebmke pointed out, I doubt breakeven is a deciding factor for many people in when they take SS.

 

[Gumby]

I actually did the math here once: Another reason to claim Social Security at 62

 

[Midpack]

I actually did the math here once: Another reason to claim Social Security at 62

I’ve looked at about a dozen different online articles on SS breakeven, from well known sources - and they all come to same conclusion you have.

 

[Midpack]

I plan to take it early and invest it. The breakeven age is around 85 at 7% Look at page 12

Guide to Retirement

Discover our Guide to Retirement, updated annually to provide you with an effective framework for supporting retirement planning conversations with clients.

am.jpmorgan.com

As noted in the OP, it’s possible but highly unlikely I’d guess. Most retirees are not 100% invested in stocks, and assigning your stock returns solely to your SS benefit if your overall AA is more conservative raises questions.

Few if any of my peers could afford, much less invest well, their SS benefits.

The only way it could be 86 would be a set of highly unlikely circumstances, such as taking SS early and investing it all in a portfolio with well above average returns - that’s risky at best. I seriously doubt many people take SS early and invest it. And if you can afford to invest it, no reason you couldn’t invest the money starting at any age thru 70.

 

[youbet]

I actually did the math here once: Another reason to claim Social Security at 62

Yeah, that was a great exercise and appreciated by everyone.

I thought, beyond the actual calculations, the statement you made which defined the "breakeven" point you are calculating was key and really added value:

You want to determine the break even point, which is where the amount you get when you wait equals the lesser amount you get by taking early for a greater number of years

This eliminates any ambiguity as to whether the time value of money is being considered in the calculation or not, which in this case it is not.

If you assume anything greater than zero for investment returns over the time period, the calculated breakeven point moves out, As Evee pointed out above in post #4, at 7% it's close to 86.

Including consideration of the value of receiving money earlier adds complexity and sophistication to the calculation. Assumptions have to be made. The math gets tougher. Etc. So, I don't see it done often. Generally it's done more simplistically, as you did it, although you were clear to point out what you were doing. Nicely done.

 

[Montecfo]

If you can afford to claim later, considering the investment returns from claiming at 62 seems a valid part of the analysis.

We have not claimed but when we will do we will have more to invest and those funds will generate a return.

 

[Sunset]

The issue I see with OP's friend is people can use any return rate to make the breakeven any value.
If I have a return rate of 12% my breakeven (without doing the math) probably is close to 95 !!

I think the best counter to OP's friend for using "special" calculations is simply to say "As long as a person doesn't spend any of it".

Kind of takes the appeal away when people hear they can't spend it. (ignoring money is fungible).

 

[Koolau]

Since I didn't need it at 62, I waited, did the Roth conversion thing and then at 70 took the max so that DW will be better set when she gets my SS at my death. None of these things really reasons depends upon break even point. I always assumed break even was somewhere around 80. Heh, heh, only a couple or three years now to break even - though won't affect DW if I'm not around.

 

[sakowitzm]

Why piss him off? Just leave it be. If anyone asks your opinion, I would offer it, but not push it, and not try to turn him around. Life's too short.

 

[TheWizard]

Aside from the people who start because they need people generally fall into two camps (1) I want to get my money back and (2) I want long term inflation adjusted income security and DRCs and when I die I don't care if I got it all back since I have bigger problems.

I see many at TaxAide who start at 62 simply because they get a notice from the SSA that they are eligible. They have no idea how the math works.

Somebody once said: Math Is Hard...

 

[Midpack]

Why piss him off? Just leave it be. If anyone asks your opinion, I would offer it, but not push it, and not try to turn him around. Life's too short.

I addressed that in the OP. ”I am not trying to embarrass him, or make others regret taking SS early - I just wish I could get him to stop giving others bad information.” He’s giving bad info to a financially naive audience, who knows where that info ends up…

 

[Gumby]

.....

If you assume anything greater than zero for investment returns over the time period, the calculated breakeven point moves out, As Evee pointed out above in post #4, at 7% it's close to 86.

Including consideration of the value of receiving money earlier adds complexity and sophistication to the calculation. Assumptions have to be made. The math gets tougher. Etc. So, I don't see it done often. Generally it's done more simplistically, as you did it, although you were clear to point out what you were doing. Nicely done.

Thank you.

No question that I could have included time value of money and made it more complex, but that involves a few assumptions (about interest rates, portfolio composition, inflation, and whether it is all or only partially saved) whereas the simple version does not involve any assumptions, just the law. And as others have pointed out, those assumptions can push the age forward or back.

If I did it that way, I would use a real rate of investment return (i.e. - subtract out an assumed rate of inflation) since social security payments are inflation adjusted, and I think 7% is too high. 4% would be more appropriate for a balanced portfolio.

In any event, the now defunct GPO determined my own claiming age, not the estimated breakeven point.

 

[Exchme]

Sounds like the friend is making a mistake by using the average return of the portfolio, but as explained on the opensocialsecurity.com website, you should not use the hoped-for returns of a risky portfolio in a comparison with guaranteed, inflation adjusted return of SS. To level out lifetime risk, the rational person should spend down bonds while waiting to claim as the needs for the security of bonds is reduced when you have a larger SS benefit. The closest type of bond to SS is long TIPS. So the best breakeven analysis is the real return of long TIPS, somewhere around 2.5% currently. At 2.5%, breakeven is 82 and few months. Male life expectancy at 62 is between age 82 and 83, so no big sin either way for single males.

But unless these are the lower earner of a married couple, then the age to use isn't based on just one life, the larger earner should base it on the longer of two since the larger benefit continues after the first spouse passes. If a male and female are both age 62, then there is about a 50% chance that at least one will be alive at age 89 and a 25% chance at least one will still cursing the decision to claim early at age 94.

Many folks (at least on this board) also could have benefitted from ACA premium credits or Roth Conversions, the decision to claim at 62 and interfere with those makes the decision even worse.

 

[sdawson]

It is so much more complicated than just a 'break even' age, especially if your spouse will be claiming SS based on your income. Are their other source of income or savings, will RMD or IRMAA come into play, what would one do with the money. Do you expect to need more of an income at 62 or 80?

The answers are different for each couple.

However, if one *has* to take SS in order to just get by, that implies they have no other retirement accounts, or perhaps a small pension, but that is it. That simplifies it a bit.

But still, if one is in the scenario where one *has* to take it at 62 in order to get by, *and* if one is still able to work, then the better advice would be to keep on working rather than taking it early. I'd suggest that if one needs it at 62, then retiring that early likely is not the best thing to do.

In the scenario where one does not *have* to take it, suggesting the retiree does have other saving accounts, pensions, or retirement plans, then the advice is still not as simple. Leaving out the spouse issue, if one is projected to hit RMD's or IRMAA rates that would be onerous (suggesting a high savings level), then it could be advantageous to take it at '62 to reduce income levels in your 70's and reduce RMD.

But again, if one is not worried about RMD or IRMAA rates it seems better to delay and have more monthly income when one is elderly and likely to need it more.

I guess, all I am saying break even year is too simplistic an analysis.

To the original poster, you don't need to correct him. If a close friend or family member seems like they are willing to follow his advice and you are worried for them, then have the discussion with *them* not with the friend giving the simplistic advise. Encourage them to find the real numbers based on their SS earnings, and go from there.

This hits home a bit, as my mother in law (who is 81 now) was one of those who took it at '62 while she still could work. It's not much and she could sure use more now than she needed then. When my wife started saying that "all her friends" plan on taking SS at '62, it took a long time for me to show her how that is not part of our retirement plan, and had the spreadsheet prepared to show her the income differences.

 

[G-Man]

I actually did the math here once: Another reason to claim Social Security at 62

Gumby.. I learned something new with your statement below.

"Once you are 62, the COLA applies to your Primary Insurance Amount (PIA), which is the amount you get at your Full Retirement Age (FRA), regardless of whether you are currently taking social security or not, so it is a simple mathematical formula and you need know only two pieces of data"

Want to make sure I understand your statement. So, my wife plans to take SS benefits at age 62 this year. The COLA amount that she will get in January 2026 will be based on her PIA amount at FRA (which is 67). I thought the COLA amount was based on her current annual SS benefits and not her PIA amount which is locked and will not change. If that is how it works, a lot of the retirement planning software is calculating your SS benefits wrong if you take your benefits at age 62.

FYI. Application of COLA to a Retirement Benefit

Sorry. So is your PIA amount increasing each year with the COLA increases. So, the COLA increase changes your PIA each year. Is that the case if you take your SS benefits at age 62? If yes, how is your age 62 and beyond SS benefit get applied the COLA increase amounts?

 

[marko]

81, 83, 86 ... does it matter?

 

[TheWizard]

It is so much more complicated than just a 'break even' age, especially if your spouse will be claiming SS based on your income. Are their other source of income or savings, will RMD or IRMAA come into play, what would one do with the money. Do you expect to need more of an income at 62 or 80?

The answers are different for each couple.

However, if one *has* to take SS in order to just get by, that implies they have no other retirement accounts, or perhaps a small pension, but that is it. That simplifies it a bit.

But still, if one is in the scenario where one *has* to take it at 62 in order to get by, *and* if one is still able to work, then the better advice would be to keep on working rather than taking it early. I'd suggest that if one needs it at 62, then retiring that early likely is not the best thing to do.

In the scenario where one does not *have* to take it, suggesting the retiree does have other saving accounts, pensions, or retirement plans, then the advice is still not as simple. Leaving out the spouse issue, if one is projected to hit RMD's or IRMAA rates that would be onerous (suggesting a high savings level), then it could be advantageous to take it at '62 to reduce income levels in your 70's and reduce RMD.

But again, if one is not worried about RMD or IRMAA rates it seems better to delay and have more monthly income when one is elderly and likely to need it more.

I guess, all I am saying break even year is too simplistic an analysis.

To the original poster, you don't need to correct him. If a close friend or family member seems like they are willing to follow his advice and you are worried for them, then have the discussion with *them* not with the friend giving the simplistic advise. Encourage them to find the real numbers based on their SS earnings, and go from there.

This hits home a bit, as my mother in law (who is 81 now) was one of those who took it at '62 while she still could work. It's not much and she could sure use more now than she needed then. When my wife started saying that "all her friends" plan on taking SS at '62, it took a long time for me to show her how that is not part of our retirement plan, and had the spreadsheet prepared to show her the income differences.

I disagree about dealing with RMDs and IRMAA.
Better to delay and do larger Roth conversions in that case...

 

[TheWizard]

81, 83, 86 ... does it matter?

No, it doesn't...

 

[Dtail]

Yep 4% inflation adjusted return on a balanced portfolio makes sense. 86 is an aggressive break even point. Just a reminder that most folks outside of investment/retirement forums who take SS at 62, is because they need to, and it is not an arbitrage of withdrawal choices.

 

[badatmath]

Many people in real life wouldn't understand or care IMO. Go read some reddit questions on SS/Medicare/RMDs/etc and you will be shocked how little people know and how reluctant they are to believe what is not in keeping with their "plan". A rather shocking number of them think they can somehow "beat the system" in some way . . .

 

[MissMolly]

Gumby.. I learned something new with your statement below.

"Once you are 62, the COLA applies to your Primary Insurance Amount (PIA), which is the amount you get at your Full Retirement Age (FRA), regardless of whether you are currently taking social security or not, so it is a simple mathematical formula and you need know only two pieces of data"

Want to make sure I understand your statement. So, my wife plans to take SS benefits at age 62 this year. The COLA amount that she will get in January 2026 will be based on her PIA amount at FRA (which is 67). I thought the COLA amount was based on her current annual SS benefits and not her PIA amount which is locked and will not change. If that is how it works, a lot of the retirement planning software is calculating your SS benefits wrong if you take your benefits at age 62.

FYI. Application of COLA to a Retirement Benefit

Sorry. So is your PIA amount increasing each year with the COLA increases. So, the COLA increase changes your PIA each year. Is that the case if you take your SS benefits at age 62? If yes, how is your age 62 and beyond SS benefit get applied the COLA increase amounts?

The COLA is still calculated based on the PIA amount but then reduced due to her early filing.